Peloton could deliver a beat-and-raise earnings report this week: analyst

Investing.com -- Peloton may beat earnings expectations and raise profitability guidance when it reports fiscal third-quarter results this week, according to Morgan Stanley analysts.

The bank’s analysts told investors in a note Wednesday that they “lean positive into the print” despite questions about the company’s long-term growth outlook.

“We expect PTON’s beat&raise cadence on EBITDA/FCF to continue with savings across the P&L,” Morgan Stanley wrote, highlighting improving margins and cost reductions.

The firm is 7% above consensus on third-quarter EBITDA, citing opportunities to reduce elevated non-variable costs and improve hardware unit economics.

While profitability is expected to headline the results, Morgan Stanley said growth remains a concern.

They highlighted that Peloton’s subscriber base continues to shrink, and alternative data points suggest weakening brand momentum.

The firm’s proprietary AlphaWise SWEAT tracker forecasts 17,000 net subscriber losses for the quarter—“in-line with mid-point of guidance/consensus”—but signals the 16th consecutive quarter of slowing connected fitness subscriber growth.

Search trends also appear troubling, according to the bank.

“Branded searches (‘Peloton’) declined heavily (-24% y/y in F3Q),” the analysts wrote, underperforming generic equipment terms by about 12 percentage points. Peloton’s website traffic also fell 21% year over year in the quarter.

Still, Morgan Stanley sees room for modest upside, especially with the stock about 33% below its recent highs.

Even if Peloton (NASDAQ: PTON) doesn’t deliver the kind of $50 million quarterly EBITDA guidance hikes it has posted in recent quarters, “a more modest raise is enough to further bull optimism.”

Tariff risks are said to be limited due to the company’s Taiwan-based supply chain and current inventory levels.

“We estimate these tariffs would drive a <2pt margin headwind before mitigation,” Morgan Stanley said, calling it a “highly manageable level.” The firm maintains an Equal Weight rating on the stock.

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